April 14. 2024. 7:51

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EU paper predicts sombre future for the German economy

The EU’s largest economy is steering towards a bleak future, with businesses more pessimistic than during the height of the pandemic, a leaked EU paper reads.

The paper, which is from the Commission, looks into how the current energy crisis will impact the bloc in the future, BILD reports.

Regarding Germany, the paper points to energy-intensive industries, including the country’s strong automotive and chemical industries, being highly impacted by the rise in energy prices.

Market leaders like BASF, BMW and Volkswagen have already announced relocations and investments abroad, Focus writes.

The Commission’s paper also thrashes Germany’s attempts to plug its dependence on Russian oil and gas and increase its capacity to develop new energies, including renewables on its own territory – which include building new LNG terminals and investing in wind and solar.

The paper points, in particular, to price trends devastatingly impacting Germany’s investments in green and digital transformation, despite its government’s vows to have 80% of the country’s electricity mix come from renewables by 2030.

“Price trends are forcing about 40% of companies to defer investments towards the green and digital transformation. And nearly one in four companies is considering (or already in the process of) relocating shares, production or jobs abroad,” the paper writes.

Besides the turmoil created by rising prices, the Commission’s paper also points to increasing competition from China and the US.

Not only is the EU expected to take a greater hit than China and the US due to the bloc’s decision to gradually phase out Russian gas and oil exports, according to the paper, recent measures from both countries to heavily subsidise green energy will also have an impact.

It adds that the US Inflation Reduction Act (IRA) and China’s industrial policy of investing in solar energy present a significant competitive disadvantage for the EU.

Though the European Commission recently presented its ‘Green Deal Industrial Plan’ to counter the IRA, which was largely well received by Germany’s coalition and the industry, states remain divided on the so-called ‘European Sovereignty Fund’.

Though the measure aims to boost domestic industry competitiveness in the medium term, EU states disagree on whether more EU common debt should be used.

France and Italy, as opposed to Germany, want to plunge deeper into the EU coffers.

To further boost the EU’s production capacities for renewable energies, the Commission is set to present its ‘Net-Zero Industry Act’ already next week.

(Benedikt Stöckl | EURACTIV.de)